Climate change models predict that future precipitation patterns will entail lower-frequency but larger rainfall events, increasing the duration of dry soil conditions. Resulting shifts in microbial C cycling activity could affect soil C storage. Further, microbial response to rainfall events may be constrained by the physiological or nutrient limitation stress of extended drought periods; thus seasonal or multiannual precipitation regimes may influence microbial activity following soil wet-up. We quantified rainfall-driven dynamics of microbial processes that affect soil C loss and retention, and microbial community composition, in soils from a long-term (14-year) field experiment contrasting “Ambient” and “Altered” (extended intervals between rainfalls) precipitation regimes. We collected soil before, the day following, and five days following 2.5-cm rainfall events during both moist and dry periods (June and September 2011; soil water potential = −0.01 and −0.83 MPa, respectively), and measured microbial respiration, microbial biomass, organic matter decomposition potential (extracellular enzyme activities), and microbial community composition (phospholipid fatty acids). The equivalent rainfall events caused equivalent microbial respiration responses in both treatments. In contrast, microbial biomass was higher and increased after rainfall in the Altered treatment soils only, thus microbial C use efficiency (CUE) was higher in Altered than Ambient treatments (0.70 ± 0.03 > 0.46 ± 0.10). CUE was also higher in dry (September) soils. C-acquiring enzyme activities (β-glucosidase, cellobiohydrolase, and phenol oxidase) increased after rainfall in moist (June), but not dry (September) soils. Both microbial biomass C:N ratios and fungal : bacterial ratios were higher at lower soil water contents, suggesting a functional and/or population-level shift in the microbiota at low soil water contents, and microbial community composition also differed following wet-up and between seasons and treatments. Overall, microbial activity may directly (C respiration) and indirectly (enzyme potential) reduce soil organic matter pools less in drier soils, and soil C sequestration potential (CUE) may be higher in soils with a history of extended dry periods between rainfall events. The implications include that soil C loss may be reduced or compensated for via different mechanisms at varying time scales, and that microbial taxa with better stress tolerance or growth efficiency may be associated with these functional shifts.